tv Studio 1.0 Bloomberg August 16, 2015 12:30pm-1:01pm EDT
♪ emily: xiaomi may be a new kid on the block, but it is no longer so little. at five years old, xiaomi rivals apple and samsung in the chinese smartphone market and is valued at $45 billion. but worldwide it is not a household name. former google executive hugo barra intends to change that. born and raised in brazil, he left a top job as the facebook android to take xiaomi global. joining me today on "studio 1.0," is xiaomi vice president of global operations, hugo barra. so great to have you here.
hugo: my pleasure. emily: how is your chinese? hugo: coming along slowly. maybe next time, we can do it. emily: i will hold you to that. hugo: it is a hard line which. emily: i understand they call you tiger brother. how did you get that name? hugo: our ceo, a social media rockstar, superstar did a simple post and said hey guys, hugo barra is joining us from google, we have to give him a name. people went crazy. everybody started suggesting names. i had no say in it. you are tiger brother. emily: when are you going to start selling phones in the united states? hugo: i would tell you if i knew. but i don't. we don't have a set date yet. selling phones is a big step up. it is a huge marketing undertaking. you know, building a smartphone brand. operationally it is complicated.
you have to have after sales set up, customer support set up, plus, localizing the hardware. we are going to work our way to that but we're not quite ready yet. emily: are you saying you will someday? hugo: of course. emily: what will it take? hugo: a sizable team to manage the process operationally, certification, ongoing engineering help. and so on. emily: months away, years away? hugo: no less than a year plus away. potentially much more than a year away. emily: you spent a long time at google. google is blocked in china, apps are blocked in china. is there a way forward for google in china? hugo: i don't know. it is a tricky issue. i do believe that it may not be the end of it. i personally don't think that it is the end of the road for google in china. purely thinking for how useful google is and the fact that people in china are universally study abroad. they depend heavily on google
even despite the fact that it is blocked. that i just think at the end of the day someone is going to figure out a way to solve whatever issues exist to bring all of this innovation to the people in china. emily: how satisfied are you with the pace of innovation? hugo: i'm quite happy. i understand how hard it is to make progress. when you are supporting hundreds around the world, i think android is entering a new phase by expressing itself through some of the different screens in different types of devices. there is basically an entirely new and completely unexplored galaxy of options here. emily: google doesn't make money off of android. it isn't doing well in terms of advertising. xiaomi have built business is off the back of android pre-do -- do you think making android open was the right call for google? hugo: i think having it as an open platform, it was the only
call google could have made on this. it would have been impossible to make the level of adoption would have seen from a close operating system. it just wouldn't go anywhere. plus, you would never be able to build such an amazing developer story. android is the best decision google ever made years ago. the fruit of that will be around for many decades. emily: how does google make money off of it? they pay apple billions of dollars. hugo: think of what would have happened if android wasn't opened. if the apps that were loaded on phones running some alternative version of android were mandated by someone. think about what that would mean for google. it means that people would not necessarily make a choice of what browser to use, which search engine to use. when have a closed operating system that mandates behaviors, it is unfair. it would be unfair for google and anybody else. absolutely one of the best thing that ever happened in tech in
the last few decades. emily: do you think google would close android? hugo: google would never do that. there is absolutely nothing that would convince larry to do such a thing. emily: larry handed over a lot of control. what is your relationship? hugo: that was an amazing decision. he is capable, the most well-rounded executive at google. he is a great product guy. he is a great business guy. it frees up time for larry to think about what should google be 10 years from now, how do we think about artificial intelligence, how does it affect design? it is hard to do both of those things at the same time. emily: you still have a relationship now that you are at xiaomi, you collaborate? hugo: we do. we are an android partner, first and foremost. we try to be in front of the pack when it comes to upgrading the operating system and using all the innovations coming from google. we spend time together every few months or so when i come and visit. emily: would xiaomi build its own operating system? hugo: we wouldn't for smartphones or tvs, or these
products. simply because it doesn't make sense to do that. we would rather use that engineering for horsepower building interesting the interesting services and capabilities on top of android that have value versus starting again. everyone who has tried has failed. despite having resources as a -- many more resources than we have as a startup, which we still are. emily: johnny ives said you had stolen his design. how do you respond to that? ♪
emily: you founded your first company after college, a mobile speech recognition company that got bought by nuance communications. that powers apple's siri. hugo: there is some amount of code. we don't know how much that made its way to the software that powers siri today. emily: you joined google in london. you worked your way up through the ranks. what was that ride like? hugo: i worked for a few really amazing executives and mentors and andy, one of the most brilliant in tech ever, a man so incredibly knowledgeable, and whose intuition about technology, thinking years and years ahead. it is completely unparalleled. i was lucky to be in the right place at the right time. emily: how did you come across this company, xiaomi. hugo: it was started, by the two
primary founders, ben was a colleague of mine. and then he left to do something new. i tracked all of that very closely. it wasn't until a couple of years that he brought their second-generation devices. it was when i powered the device on and played with it the first time that it dawned on me those guys were not joking around. emily: tell me your first meeting. hugo: it was a four-hour meeting which tends to be the case. very deep, involved discussions. he is that kind of guy. it was a dinner in late 2012. we spent time talking about everything from mobile to internet to brazil and cars. i found him to be one of the most fascinating people i've ever met. at the same level of somebody
like andy rubin. his ability to understand consumers, think ahead, four hours flew by like 10 minutes. it was amazing. and this was a translated conversation. emily: he did speak to you in chinese? hugo: in chinese. and been translated. it was a surreal but amazing experience. emily: how do you decide to take this job? hugo: part of me you always wanted to try something. beyond that was a possibility that they may be doing something that would have a similar level of impact in the world. emily: how did larry take the news? hugo: larry reached out and was supportive but at the same time trying to see if that was really what i wanted to do.
at the end of the day, everyone was supportive. in many ways i was leaving to continue what i had been doing for android. xiaomi would become one of the most important partners for the android team. it was like i was still in the family. emily: what are the differences? between working at a chinese tech company in google? hugo: there is a lot in between the lines in the culture. you have to be sensitive with what you say in front of. xiaomi is a interesting mix of silicon valley work as hard as possible culture with traditional chinese culture. it is really interesting hybrid of things that you would see at apple, and absolute love for design and the culture of perfectionism.
emily: is it a phone company, an electronic company, a software company? hugo: it is none of those. it is an internet company. that is the best way to describe xiaomi. we interact with our customers and users, or as we prefer to call them, our fans through the internet, through social media. we sell our products direct. we are the third largest e-commerce site in china. and the largest pure play by miles. we design products, taking a lot of input from the community. probably 50% of all of the new features we end up building as part of our software came from the community. you can pinpoint it down to one user's idea. this is very unique. emily: you sell phones. high quality phones at cost. but you make most of the money by selling services, right?
hugo: we think of phones as a platform. we think about tv and tv boxes as a platform. on top of that we have a number of services and apps that we built that we have worked with partners to integrate. which do work as a monetization platform for us. we have an ecosystem of gadgets and accessories which are products like power banks and headsets but all sorts of other connective devices. we have an air purifier, we have an action camera, security camera. emily: how much money do you generate? hugo: this year, we estimate we will have about one billion u.s. dollars from services alone. emily: you are invested in 30 different startups. hardware and software companies
and they partner with you. what is the relationship there? what cut do you get? what cut to the developers or makers of the product get? hugo: it is the unique model which i have not seen done anywhere else. the way it works as we help these companies get started. we will put the founders together, work together and build this. we will get them funded to start with, then we will leave them alone to operate independently. then we pick the best products they make and we put our brand on those products and sell it through our e-commerce engine. if these guys do a good job they will enjoy success. some may go public before we do. they ship about one million of these. which makes them the small company the most popular fitness wearable devices in the world. emily: how is the money shared? hugo: they manufacture with a contract which we help them connect with, then they pay
those guys and they sell it back to us and make margin. emily: how much? hugo: it varies. we make good margins through these products differently through our products. they make some margins. we make some margins. it is a good relationship. emily: what is the biggest revenue driver for xiaomi? hugo: it's still phones that drives most profits today without a doubt. the trend over time is for services strategy to really grow and become the main profit engine for the company. emily: international growth. where is it working, where isn't it working? hugo: we are taking it slowly. we are paying attention to how we need to change things. we made our way to india and indonesia, two significant markets. two very interesting markets,
india in particular. emily: your model is being copied to certain extents. can you see where there is a micromax in india? hugo: our model is being copied left and right. both in china and in other markets. the way we respond to that is to continue to evolve. companies that are copying us now are copying xiaomi from a year ago. emily: how does xiaomi live up to a $45 billion evaluation? ♪
♪ emily: xiaomi has also been accused of copying. johnny ives acused two of xiaomi's phones as theft. he said you stole his designs. how do you respond to that? hugo: this copycat melodrama boils down to one edge on one phone model. which people said it looks like the iphone five. i've been the first to say it does look like the iphone 5. that edge, by the way, is present in so many other
devices, but it was in many ways, people projecting their bias against chinese companies on to us. people could not bring themselves to believe that a chinese company actually could be a world innovator, could build amazingly high-quality products and, by the way, sell them for less than half the price. i think that drama has quickly started to vanish. i would point out, there is nothing you can point to that even remotely resembled it. emily: you don't think it looks like the iphone 6 plus? hugo: it is white. [laughter] hugo: how else does it look like the iphone 6 plus? emily: you said it comes down to one future, but as i understand it, the criticism was the look and feel of the product in general. hugo: i don't think that is fair. every smart phone these days kind of looks like every other
smart phone. you have to have curved corners. you have to have at least a home button in some way. that's how interaction and design works. i don't think we can allow companies to take ownership of things that just are how they are. i think that if you look at what we have designed in the last 12 months you will understand how much originality there is in what we do. and to be honest, i think you are going to see a lot more happening in the opposite direction, right? people taking inspiration on what we do. emily: the ceo is often compared to steve jobs. he doesn't like that comparison. he wears a black shirt. why does he do that? hugo: he's no longer wearing black shirts. he wears a blue button-down shirt. he has 50 of those. he wears them to the office every single day. one more thing was a joke.
people just took it way too seriously. we don't take ourselves seriously at all. when the keynote happened, the room exploded. emily: on a more serious note, the reason you are rolling out phones in the u.s. because of intellectual property issues. how protected are you if you do start selling in the u.s.? are you worried about patent law and potentially getting sued? hugo: we are always worried about patent licensing and intellectual property. every company in this industry has had to deal with that. there are two things we are doing which take time. one is systematically taking patent licenses around the world. if it is a patent, it needs to be licensed. in that is what we are doing. it takes time. we take those and talk to everyone we need to talk to. secondly we are building our own portfolio of patents.
for defensive purposes because you have to have that. think of it as a war chest of sorts. we have filed 2000 patents, which is actually a lot. we are acquiring patents. that is one of many factors that determines when we are ready to enter certain markets. emily: you and apple are jockeying for the top spot in china. what is happening is the smartphone market is saturated for the first time. how worried are you about that? hugo: china has moved into the replacement market. people already have a phone. they want to buy a new phone every year. the replacement is actually coming down. people are more anxious to buy a new phone more often. there is a tremendous amount of room for us to grow even if the pie itself isn't growing. emily: would you ever make a car? hugo: we are not making a car right now just to be clear. i think that is an extraordinarily difficult task. it is not something that we can build today. we are not resourced.
but why not? emily: you raised $1.1 billion. you are valued at $45 billion. why is xiaomi still private? hugo: i do think that moving fast and changing direction is important for us. when you are a public company you are more restrained in your ability to do that, to massively allocate investment into something that may not pan out for some time. i think that being more flexible and being able to move quickly is the reason why we will be private for quite a long time. emily: what is an ipo look like? hugo: five years away. he has been giving the same answer for the last couple of years. emily: how does xiaomi live up to a $45 billion valuation? hugo: there are so many services that people haven't even started thinking about. $45 billion is just the beginning. emily: thank you for joining us. so great to have you. ♪